Memorandum by the Department of the Environment,
Transport and the Regions (NATS 03)

The Transport Sub-Committee is conducting an
enquiry into National Air Traffic Services Ltd (NATS), in particular
into the new air traffic control centres at Swanwick and Prestwick,
and the failure of systems at the West Drayton air traffic control
centre.

THE NEW
EN ROUTE
CENTREAT
SWANWICK

NATS announced in July 2000 that the New En
Route Centre at Swanwick is targeted to come into operation on
27 January 2002. The last major milestone before this operational
date is Technical Handover, when the centre's systems will be
ready for operation. Technical Handover will be achieved by December
this year, and will be followed by a year of training of controllers
on the new systems. Controllers have already received training
schedules covering the period up to the operational date.

In October 1998 John Reid, the then Minister
of Transport, announced to the Transport Sub-Committee that the
operational date for the Swanwick centre would be in early 2002.
Since then the project has achieved all of the milestones necessary
to achieve the scheduled operational date. Previous delays to
the centre resulted from over-optimistic timetabling and ongoing
technical problems.

Following the recommendations of the Sub-Committee's
report into air traffic control published in April 1998, the Government
commissioned two audits of the Swanwick project. The first, by
the Defence Evaluation and Research Agency (DERA) confirmed the
viability of the centre's computer system, proposed a new operational
date of winter 2001-2, and made a number of suggestions on improving
NATS' project management. One of the two major proposals on project
management was the introduction of external project management
expertise, and this has been done through the introduction of
Bechtel. The other major DERA recommendation on project management
was the separation of the "supplier" and "customer"
groups within NATSthis was also taken up.

The DERA report also found "no merit"
(including on the question of safety) in the proposal that the
Swanwick and New Scottish Centre systems should use different
systems.

The second report commissioned by the Government
was carried out by Arthur D Little Ltd, and looked at the cost
of the centre and the management of the project. The report concluded
that the centre was likely to cost around £625 million (not
including NATS internal costs), which exceeded the original budget
estimate by around £150 million. There were a large number
of recommendations on project management, many of which have been
adopted by NATS, including the development of a more open management
culture.

The report also looked at the Government's handling
of the project. Although the report concluded that the Government's
role in overseeing the project was generally appropriate, it also
made several recommendations designed to improve Government oversight
of NATS projects, most of which have been adopted by the Government.
These include preparing project-specific oversight plans, revision
of project progress reports, and holding of regular meetings with
NATS and other interested parties on major projects.

On the question of whether or not the Swanwick
and New Scottish Centre should use a single system, the Arthur
D Little report found that "the commercial advantages of
a single system far outweigh the disadvantages".

NEW SCOTTISH
CENTRE (NSC) AT
PRESTWICK

Approval for the NSC project was given in 1993.
The centre was to replace the existing centre at Prestwick, and
also provide contingency back-up in the event of the Swanwick
centre going out of action. The original target date for the NSC
to come into operation was 2000. In the 1993 Budget, the then
Government announced that the NSC would be taken forward under
the Private Finance Initiative (PFI). Under the PFI, the contractor
would design, build and maintain the centre under a 25 year contract,
although NATS would continue to operate.

NATS had concerns about the PFI from the outset.
They feared that not having direct control over one of their two
major en route centres could lead to problems in introducing new
technology at the NSC. NATS also had concerns about ensuring compatibility
between systems at the two centres.

Progress on finding a contractor was slow. Invitations
to tender were issued in September 1995, and tenders were received
from two bidders in May 1996. It was not until March 1997 that
Sky Solutions was declared the preferred bidder. Sky Solutions
was a consortium comprising Lockheed Martin (systems) and Bovis
(construction).

Discussions continued between NATS and Sky Solutions
in an attempt to find a mutually acceptable contract, but it was
not until December 1998 that NATS submitted a draft PFI agreement
for approval by the Government. However it was soon apparent that
the proposals were not acceptableinsufficient commercial
risk was being transferred to the contractors. The Government's
financial advisers for NATS PPP, Credit Suisse First Boston, also
expressed reservations about the desirability of the proposed
PFI project in the context of a PPP for NATS. Following further
discussions between DETR, the Treasury Task Force and NATS, it
was decided in early 1999 that it was no longer appropriate to
pursue the contract under PFI.

Following this step, and learning lessons from
the Swanwick project, NATS and DETR held a competition for an
external project manager for the NSC, and Bechtel Inc were chosen.
Following that appointment, Bechtel, with NATS, reviewed the contracting
strategy for the entire NSC project. They concluded that, rather
than continue with Sky Solutions under a conventional procurement,
there would be significant advantages to contracting directly
with Lockheed Martin for the systems, and retendering the building
contract. In February this year an agreement was signed with Lockheed
Martin, and a building design competition is currently being held
between two selected firms. The winning designers will be chosen
in December this year, and following a future competition the
building contractors will be chosen. Construction is due to start
early next year. Although it is too early to be precise, this
new contracting strategy is expected to save up to £100 million
when compared with the original post-PFI estimates. NATS now expect
the centre to become operational in 2007-08.

NEW OCEANIC
FLIGHT DATA
PROCESSING SYSTEM

The Oceanic Air Traffic Control Centre at Prestwick
handles aircraft flying across the area of the north Atlantic
to the west of the UK and Ireland, known as the Shanwick region.
Under international agreement, the UK provides the air traffic
control services, and Ireland provides radio communication.

The centrepiece of the Oceanic centre is the
flight data processing system (FDPS) which processes information
on air traffic crossing the Shanwick region. The need for a new
Oceanic FDPS has been identified, which will have a much greater
capacity than the current system. It will enable NATS to allow
reduced separation between aircraft in this sector, and thereby
meet the new international standards on aircraft separation that
the International Civil Aviation Organisation (ICAO) plan to introduce.
It is planned to house the FDPS in the New Scottish Centre.

In November 1994, a competition was announced
for the selection of a supplier for the new FDPS under the Private
Finance Initiative. In July 1997 the contract was awarded to EDS
Ltdthe term of the concession agreement was 13 years, including
a period for design and installation. Unfortunately problems set
in at the project definition phase, and the project was delayed
by two years until 2002.

NATS and EDS experienced a number of difficulties
with the contract. Following a number of unsuccessful attempts
to resolve these including a renegotiation of a number of the
contract terms, NATS terminated the contract in August 2000, citing
EDS' failure to deliver a "Contract Design Review" to
the scope and extent required by the contract. NATS, with the
assistance of Bechtel, are currently deciding how to take the
project forward. The existing system is capable of functioning
for some years into the future; and ICAO standards on aircraft
separation will not now be introduced until some time after 2005.

LONDON AREA
& TERMINAL CONTROL
CENTRE (LATCC), WEST
DRAYTON

The TSC will be aware of a number of computer
failures at LATCC over the last few months. These were failures
of the National Flight Data Processing System (NAS), at LATCC,
which handles all flights in UK controlled airspace and provides
controllers with the information crucial to ensuring a safe and
smooth flow of traffic.

There were four failures of NAS between June
and August this year, mainly due to software faults which had
lain dormant for a number of years. One of these, on 17 June,
caused serious delays to aircraft flights. These problems have
now been identified, and measures have been put in place to prevent
further failures due to the same causes. At no time during these
recent failures was the safety of air traffic impaired. It was
regrettable but necessary to impose delays, and for a short period
in some cases an embargo on flights entering the system, as a
means of ensuring the safety of flights already airborne and to
prevent the risk of overloading the system.

NATS has no requirement to replace its NAS until
2005 and considers it best to utilise NAS as the source of flight
data at Swanwick when it opens in 2002, rather than introduce
a further view system at that time.

CONCLUSION

The Sub-Committee's report on NATS in 1998 contained
a number of constructive criticisms of the handling of NATS' major
projects. Most of its recommendations, and those of the audits
it engendered, have been implemented by NATS and the DETR. Two
years on the Government is pleased to report that NATS management
of major projects has significantly improved.

The improvement in NATS management can be seen
at Swanwick, where for the last two years the project has proceeded
on schedule, and is still on schedule to open in 2002. The contractual
framework for the New Scottish Centre has been reworked, and considerable
cost savings are anticipated.

There are still important tasks facing NATS
in the area of major projects, for example the progressing of
the Oceanic FDPS project following the termination of the contract
with EDS. But the process of updating and replacing its air traffic
control infrastructure is a constant and never-ending task for
NATS, and one they are now better equipped to carry out.

The Government's proposed PPP for NATS will
further enhance NATS' capabilities through access to private sector
financial markets and management expertise.